Drug Firms Urged to Divide Top Jobs

Faith-Based Groups Ally
With Watchdogs to Push
For Chairman-CEO Split

Bosses at big pharmaceutical companies already have their hands full with drug withdrawals, patent expirations, regulatory scrutiny and earnings declines.

Now add insult to injury: An odd mix of faith-based organizations, corporate-governance groups and disgruntled shareholders have joined forces to pressure the boards of drug makers to split the jobs of chairman and chief executive officer. These activists' motivations vary, but they are heading in the same direction.

Six major U.S. pharmaceutical companies have shareholder proposals on the ballot this year urging that an independent director be named chairman, stripping the duties from the CEO.

The religious groups want to tear the jobs asunder as part of the groups' broader effort to lobby the pharmaceutical industry to provide greater access to drugs. The gambit: A chairman may have more time and motivation to think about such matters than a CEO.

"Millions of Americans and others around the world have no access to our company's life-saving medicines," says the proposal crafted by members of the Interfaith Center on Corporate Responsibility, a coalition of 275 faith-based institutional investors with assets of $110 billion. "We believe an independent chair and vigorous board will bring greater focus to this ethical imperative."

The drug makers all oppose the initiatives. But the proposals have strong enough backing to get attention from upper management. At
Wyeth's
annual meeting yesterday, 39% of shareholder votes favored splitting the chairman and CEO jobs, and earlier in the week, 25% of votes cast by
Eli Lilly
LLY -1.64%
& Co. shareholders supported splitting the two top jobs.

At Bristol-Myers, a substantial block of shareholders has already called for splitting the chairman and CEO jobs now held by Peter R. Dolan. Last year, 39% of Bristol-Myers voters supported such a shareholder proposal. A similar proxy proposal at
Walt Disney Co.
DIS -1.00%
last year drew 45% of the shares cast, and ultimately resulted in chief Michael Eisner losing his chairman title.

The Bristol-Myers proposal was brought by a longtime shareholder who complains of poor stock performance since 2000, depressed earnings, increased long-term debt and legal issues. "We need an independent chairman and a world-class CEO," said Dundas I. Flaherty, a private investor who owns 152,920 Bristol-Myers shares.

Bristol-Myers urged shareholders to reject the proposal, saying it is in the "best interest" of the company to have one person as chairman and CEO "to provide unified leadership and direction."

The proposals at five other big drug companies are new this year, filed by faith-based institutional investors. "We got a lot of indignation and push back," said Daniel E. Rosan, the ICCR's program director.

At two big drug makers, the ICCR didn't submit a proposal to split the top jobs. Mr. Rosan said the ICCR met with
Johnson & Johnson
JNJ -1.42%
Chairman and CEO William C. Weldon and decided to hold off in the hope he will lobby others in his new position as the head Pharmaceutical Research and Manufacturers of America, the industry trade association. The ICCR said it will allow time for relatively new
Schering-Plough
Chairman and CEO Fred Hassan to implement management and ethics policies.

For more capitalistic reasons, corporate-governance groups have joined the bandwagon to split the top jobs. "We want a counterbalance to be in place to make sure the CEO doesn't have unlimited power," said Patrick McGurn, executive vice president at Institutional Shareholder Services, which provides proxy vote recommendations to more than 1,200 institutional and corporate clients.

ISS recommended splitting the top jobs at five of the drug makers where proposals are on the ballot, but opposed the move at Abbott, citing the board's independent governance structure, lead-director position and good financial performance.

Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said splitting the CEO and chairman jobs may be beneficial if the right people are in place. But it can also create division and uncertainty. "Theoretically, it makes a lot of sense," he said. "But it is harder in practice."